SPECIAL REPORT ON LATE PAYMENT INTEREST PENALTIES

ADDENDUM TO THE APRIL 2018 DTA REPORT

As noted in Debt Transparency Act Report No. 4, $553

SUMMARY
• Late payment interest penalties pending at the
Office of the Comptroller totaled $553 million —
liabilities that require state revenues, but do not
directly fund state services.
• 97% of the pending late payment interest penalties
at the Office of the Comptroller was owed to
medical bills for state employee health insurance
and Medicaid.
• Roughly 55% is vouchered to third-party lenders.
• Late payment interest penalties owed for just the
past two-and-a-half years, dominated by a lengthy
budget impasse, exceed the total penalties
accumulated in the prior 18 years.
primarily for Central Management Service’s (CMS) Group Health Insurance program, are this type of payment. Interest for
timely pay is calculated at 9 percent per year.
million in late payment interest penalties was pending at
the Office of the Comptroller (IOC) as of March 31, 2018.
There was $100.5 million payable from the General
Revenue Fund and $440.7 million payable from the Health
Insurance Reserve Fund, with the remaining payables
allocated to other state funds. These late payment interest
penalties are liabilities that must be paid with state
revenues, but do not go directly to fund state services
designed to meet the needs of Illinois residents.
Most of the penalties are owed pursuant to the State
Prompt Payment Act. The Act requires late payment
interest penalties be paid when bills are delayed more
than 90 days, and interest owed is calculated at 12
percent per year after that 90 days. Timely Pay, under the
Insurance Code, requires interest penalties be paid to
vendors when payments are delayed more than 30 days.
About $149.2 million in penalties pending at the IOC,

Notably, of the late payment interest penalties vouchered and pending at the IOC, the majority were in small-dollar
increments. Of the 19,738 vouchers pending,
15,104 are under $1,000. Just 60 vouchers out of
the nearly 20,000 pending at the IOC were for
Table 1: Makeup of IOC Pending Late Payment Interest Penalties by Type
more than $1 million, but made up 74.9 percent
($ in Millions)
of the total late payment interest penalties owed
at the IOC.

State Agency Distribution of

Late Payment Interest Penalties
Table 2 shows a side-by-side comparison of late
payment interest penalties pending at the IOC and at the agency level, by originating agency.

By far, the agency with the most vouchered late payment interest penalties pending at the IOC was CMS, with $441,733,462,
or 79.9 percent of all pending vouchered late payment interest penalties. The Department of Healthcare and Family Services
(HFS) had pending late payment interest penalty vouchers totaling $94,233,437.

The fact that CMS and HFS comprise the majority of pending late payment interest penalty vouchers (96.9 percent) highlights
the number of large-dollar delayed interest payments owed to health care vendors and providers.

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There are state agencies still holding
significant levels of liabilities due to
insufficient appropriations. For instance, the
Department of Corrections reports it is
holding $414 million in unpaid liabilities as
of the end of March and insufficient
appropriations to send those bills, including
the associated late payment interest penalty
costs, to the IOC. Moreover, as identified in
Debt Transparency Act (DTA) Report No. 4,
CMS’s Group Health Insurance program
faces a funding shortfall from the General
Revenue Fund to get all of its delayed
payments made.
Thus, the estimated accrued late payment
interest penalties at the agency level,
including Corrections and CMS, continues
to grow, since in many cases the original bill
that is accruing late payment interest
penalties has yet to be vouchered and sent
to the Office of the Comptroller (IOC) for
payment.

Late Payment Interest Penalties During the Impasse and Use of Vendor Assistance Program
Between fiscal years 1998 and 2015, vouchered late payment interest penalties owed to vendors providing services to the
state totaled about $1.0396 billion. In fiscal year 2016, fiscal year 2017 and through the first three quarters of fiscal year 2018,
vouchers totaling $841.5 million in late payment interest penalties had been sent to the IOC.2 Additionally, in DTA Report No.
4, state agencies estimated pending late payment interest penalty liabilities of $298.1 million, bringing the estimated two-
and-a-half-year total late payment interest penalty cost, dominated by a lengthy budget impasse, to $1.1396 billion.
In other words, during the past two-and-a-half years, state government built up late payment interest penalties totaling
$100 million more than it had paid in the previous 18 years combined.
Furthermore, due to Illinois’ worsened fiscal condition during the impasse period, which caused, in some cases, delays in bill
payments of up to two years, many struggling state vendors sold the amount the state owed them to qualified third-party
entities, known as qualified purchasers, through state administered debt sale programs such as the Vendor Payment Program
(VPP) and Vendor Support Initiative (VSI). Vendors that utilized these programs received a large portion of their owed debt
through a qualified purchaser in exchange for the late payment interest penalties owed on the debt.3
Of the nearly $553 million of late payment interest penalties pending at the IOC, roughly 55 percent is vouchered to be
paid to third-party lenders.
VPP was an important lifeline to state vendors that struggled during the budget impasse to meet operational costs for services
already rendered, and although VPP and VSI can be considered important administrative tools to assist state vendors, their
use contributed to the extreme length of the budget impasse, which ultimately resulted in a record accumulation of late
payment interest penalties. This record accumulation of late payment interest penalties highlights the significant negative
impact the impasse had on the state’s finances and should serve as a caution to policymakers about the dangers of allowing
interest costs to skyrocket unabated in the future.
1
Vouchered Late Payment Interest Penalties, fiscal years 1998-2015. SAMS Illinois State Comptroller’s Office, March 2018
2
Vouchered Late Payment Interest Penalties, fiscal years 2016-2018. SAMS Illinois State Comptroller’s Office, March 2018
3
When Illinois refinanced a portion of state debt in November 2017 through a $6 billion general obligation bond sale, more than $2.3 billion in backlogged bills
was paid to entities that had purchased late accounts receivable during the budget impasse.

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Table 2: Pending Late Payment Interest Penalties by Agency
Amount Reported at

4
Amount reported as held at the agency level from submissions by the agencies for Debt
Transparency Report No. 4, for the period ending March 31, 2018.